Restaurants to be Investigated by HMRC

Taxman Announces Attention on Restaurants Hoping for Rich Pickings

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The taxman has turned up the pressure on restaurants, to pay all of their taxes due, with the announcement of a task force to specifically investigate the sector, at first in London, the north west and Scotland.

The task force starts work this month, June 2011, but there is no confirmation of the number of businesses that this initiative may affect, or the precise focus of their attentions – with all four main tax areas quoted – Income Tax, VAT, PAYE and Corporation Tax.

Restaurants are an obvious choice at face value to achieve a return of tax on the investment of HMRC time, due to the high level of cash transactions, and the relative ease of un-declaration. And also the itinerant nature of the workforce, meaning that strict PAYE rules are more difficult to apply.

As part of the Government spending review it is hoped that a focus on tax evasion, across the economy will bring in an additional £7bn a year to HMRC.

Restaurants should now ensure that:

Their record keeping is in good order, so an effective trail of transactions can be traced, from customer purchase to banking.
All income is declared through the business, before drawings or expenditure.
Wages are paid through PAYE and not cash in hand, without proper P46 procedures.
Gratuity systems conform to current regulations.
VAT is accounted for correctly on personal purchases, such as private use petrol.
Directors loan and dividend transactions for companies are applied and recorded correctly.

It is possible that HMRC will do research prior to announcement of their attentions, with test purchases and visits. They may also have an interest in the lifestyle of the proprietor and how it is funded.

Although the headline sector is titled ‘restaurants’ this includes takeaways, sandwich bars and other fast food outlets – likely to be more of a focus than a full-service restaurant. Although owner managed venues can expect more attention than national chains.

If your business does come under scrutiny, you are advised to contact your accountant immediately for advice. It is not necessary for you to provide more information than you have to, and it is recommended that your accountant is present at any meetings.

You may also like to consider insurance against the cost of handling an investigation. Membership of the Federation of Small Businesses gives you cover for a full aspect enquiry, and through your accountant, policies are available from Abbey Tax, which cover individual aspects on their own.

In the event of being caught out, prosecution is rare. To reduce workload (on both sides) HMRC will often negotiate, on a full disclosure by the business.

Businesses in the south west have a little more time to prepare than their London and northern counterparts, and would be well advised to undertake a review now.

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